A new tool for enforcing fair-housing rules

February 22, 2013|Mary Ellen Podmolik | The Homefront

A new government rule provides clarity on the discriminatory effects in housing practices. (Image Source, Getty Images)

The nation's fair-housing rules became clearer this month when the Department of Housing and Urban Development finalized a rule that it hopes makes it easier to determine whether a housing practice is discriminatory.

The formal adoption of uniform standards for the Fair Housing Act's so-called disparate impact provisions codifies a theory that was in place — that a housing policy can be discriminatory if it applies to everyone but leads to discrimination, regardless of whether it was intentional.

While HUD said that, most of the time, courts agreed on how to approach the issue of discriminatory effects of certain housing policies, "a small degree of variation" required a new formal regulation.

The rule, proposed by HUD in November 2011, generated a fair amount of discussion, with consumer advocates and legal aid groups supporting it, and wary financial and insurance companies voicing their concerns. In a three-month period, the proposed rule received 96 public comments.

Those comments included calls for HUD to delay issuing any final rule until the conclusion of a case involving disparate impact in St. Paul, Minn., that was to be heard by the Supreme Court. But in a move that surprised many, the city of St. Paul withdrew the case about a year ago.

In the midst of waiting for final rules, two disparate impact claims related to mortgage lending to African-American and Hispanic consumers led to sizable settlements and national media attention.

Last summer, for example, Wells Fargo & Co. agreed to a $175 million settlement of allegations made first by the Illinois attorney general's office, and then by the Justice Department, that Wells Fargo's independent mortgage brokers discriminated against minority borrowers.

The suits were based on a statistical survey of home lending data. The bank did not admit any wrongdoing.

Part of the settlement also included Chicago consumers receiving $8.2million in down payment assistance through Wells' CityLift program, now under way locally.

The Wells settlement followed an earlier one with Bank of America over claims related to its Countrywide Financial unit.

"The net effect (of HUD's rule) is positive," said Elizabeth Rosenthal, a senior attorney at LAF, formerly known as the Legal Assistance Foundation of Metropolitan Chicago.

"Advocates for fair housing feel this is codification of existing law, and that's a good thing. This creates a template that everyone can follow."

Anyone who brings a suit still will have to prove that a certain housing practice does result, or predictably could result, in housing discrimination. Then, a defendant would have to prove that the practice is necessary. If the defendant does that, the plaintiff then has the opportunity to show that the defendant's interests could still be served by adopting a practice that has less discriminatory effects.

The American Bankers Association remains concerned by the final rule.

"By relying solely on statistical analysis to show that neutral policies have a disproportionate impact on a protected class and eliminating any demonstration of discriminatory intent or conduct, we believe HUD overreaches the authority Congress bestowed in the Fair Housing Act," association president Frank Keating said in a statement.

"We fear HUD's approach could have unintended consequences, compelling financial institutions to shrink their mortgage operations rather than risk costly litigation. This overly aggressive standard is out of line with the stringent underwriting standards required in today's economic and regulatory environment and threatens the very groups HUD is trying to help."

Positive numbers. Demand for existing homes is at a level not seen for many years, and that's not just good news for home sellers. It's good for builders too.

In the final quarter of 2012, construction started on 1,129 homes in the 12-county Chicago region, which extends from the Illinois-Wisconsin border to northwest Indiana, according to Metrostudy. It represented only the second time the market saw more than 1,000 housing starts in a quarter since 2009's third quarter.

Still, there's plenty of room left for homes, even in "hot" suburbs. According to Metrostudy, Naperville ranked first last year in terms of new-home starts, with 232. At the current rate of construction, it has almost a 34-month supply of vacant developed lots.